KitcoCasey interviews Sprott''s John Embry on gold price manipulation

The Financial Times story appended here shows that
government officials in Europe are starting to
realize, if more than a few years late, that banks
have gotten bigger than governments and have
started to intrude on government's market-rigging
prerogatives.

It's one thing for banks to help governments rig
markets in accord with surreptitious national
policy, but when banks like Citibank head out on
their own and start smashing up the government bond
markets for some easy money, central bankers can
get indignant. Here, in effect, the Bundesbank is
telling Citibank: "Hey, YOU can't rig our markets.
Only WE can rig our markets!"

FRANKFURT -- Controversial trading in eurozone government bonds by
Citigroup has highlighted "systemic risks" in some smaller
European countries and strengthened the case for retaining national
regulators, Germany's Bundesbank has warned.

Edgar Meister, Bundesbank director responsible for financial
supervision, also added to widespread calls for Citigroup's sale of
12 billion ($15.3 billion, 8.2 billion) in bonds last August
in the span of several seconds to be "investigated completely."

After stunning the market with its sale, Citigroup bought back 4
billion of the bonds at lower prices. The deal angered eurozone
governments and overwhelmed the electronic MTS trading system. It is
now being investigated by regulators across Europe and by state
prosecutors in Frankfurt.

"It was not the case in Germany, but in smaller countries similar
behaviour could lead to systemic risks," Mr Meister said in an
interview with the Financial Times.

Mr Meister did not give examples but implied that while the
Citigroup transactions were withstood by Germany, Europe's largest
economy, the effects of massive trades in a diffferent market or a
smaller country could be dramatic.

One lesson the Bundesbank is drawing is that the Citigroup case
strengthens the argument for retaining national regulation. Earlier
this week Pervenche Bres, who chairs the the European
Parliament's economic and monetary affairs committee, said the lack
of co-ordination among national regulators had highlighted the need
for a regulator with Europe-wide powers.

But Mr Meister said Citigroup's bond trades "show that we need
supervisors with national competence close to the market. A central
European bank supervisor could not do that." National regulators
were better placed to understand local systems and local laws, he
said.

The debate about whether Europe's financial regulators should be
given stronger cross-border responsibilities has intensified as the
so-called Basel II rules on banks' capital requirements are
implemented. The Bundesbank opposes the idea of a "lead supervisor"
whereby regulators in a bank's home market would be responsible for
its operations across the continent. The German central bank fears
that could result in German authorities losing control over, for
instance, a French bank's subsidiaries operating in Germany.

One idea is that regulation of an international bank could revert to
a lead-regulator when regulators from different countries disagreed.
But Mr Meister argued that would also result in a loss of local
responsibility.

"Particularly affected would be financial centres such as London
and Frankfurt, where a lot of subsidaries of international banks are
active."

He added: "Here there is also a connection with the current case
of Citigroup," he said. "A central supervisor far away could not
have cleared that up.

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